My talk today will be a departure from the usual presentation on Japanese tourism to Australia. My focus is on the Japanese wholesaler - not the Japanese tourist.

Why do I consider the wholesalers an important topic for research? There are three good reasons. First, in 1992 four in five Japanese who travelled overseas bought travel product through the wholesalers; second, the top eight Japanese wholesalers were responsible for approximately 65 percent of the Japanese who travelled to Australia last year; third, as Graphs 1-3 indicate, the Japanese pre-pay for a far greater amount of their overseas travel arrangements before leaving Japan than any other of Australia's main inbound markets (payments which, of course, are made to the wholesalers for package and group travel products). The influence of the wholesaler in the Japanese market place is clear. It follows therefore that Australian tourism operators who seriously want to enter, or increase their share of, the Japanese market must understand the wholesalers.

The more you know about the wholesaler the better you will be able to do business with them. This fact should be self-evident. The wholesaler is, after all, your "other" Japanese customer. In many cases, it is also your first Japanese customer. You have to "sell" them, before you can sell to the Japanese tourist.

Yes, of course, you need to know about the Japanese traveller - my argument is that you also must understand the wholesaler. I believe that this applies even if you deal through an Australian inbound operator who is handling a Japanese wholesaler's programs.

There is much I could talk about with regard to the wholesalers. What I have decided to talk about are the critical issues that today face the Japanese wholesalers. In so doing, I hope to provide insights into how you may better market your product to the trade sector in Japanese outbound tourism.

My talk is divided into two parts: The first looks at the business environment of the Japanese tour wholesaler; and the second discusses how that environment is impacting and is likely to impact upon the composition and nature of Japanese travel to Australia. In conclusion, I would like to make some comments on how our tourism product is marketed within Australia.

Background to the Wholesaler
Before proceeding with my talk, I should provide some background information about Japanese wholesalers for those in the audience unacquainted with the industry in Japan.

A wholesaler is the term applied to a general travel agent (GTA) which is permitted by law to arrange and sell package tours, whether for overseas or domestic travel. Wholesalers in Japan are permitted to own their own retail networks. There are over 1,000 active wholesales operating in Japan. Only fifteen, however, have a retail network with more than 50 branches nationwide. JTB, for example, Japan's largest travel company, has a nationwide network of 321 branches, 414 sub-agencies and 6,819 affiliated agencies.

The Japanese outbound travel industry is highly oligopolistic: a few big players enjoy a large market share. Industry people talk of the Big Eight wholesalers (just as we in Australia talk of the Big Four banks). In the Australian market, for example, I estimate that the Top Eight control between 60-70 percent of the total Japanese inbound market. The largest wholesaler is JTB, with approximately 25 percent of the Australian market; this approximates their market share of the overall Japanese outbound market (see Graph 4). Number Two is Kinki Nippon Tourist (KNT). Its overseas subsidiary is known as KIE International; I will refer to it as Kintetsu during my talk. Its market share is somewhere around 10 percent.

The wholesaler divides its market into two basic categories: package tours and group tours. In general, package tours account for 60 percent of income, while group tours account for 30-35 percent. Independent, or FIT, travel accounts for the remainder.

I would now like to look at recent developments in the outbound industry in Japan. These will be: the impact of the recession on the outbound industry; the FIT market; the decline in luxury package tours; diversifying consumer needs; and the competitive environment.

1. From Boom to Recession
Graph 5 shows growth in Japanese overseas travel since it was liberalised in 1964. You will notice that outbound travel more than doubled between 1987 and 1990. In terms of growth per year, Graph 6 indicates that, apart from the blip in 1991, caused by the Gulf War, Japan has registered excellent year-on-year growth rates in recent years. Since the second half of last year, however, growth in outbound travel has turned negative.

Graph 7 shows the growth in outbound travel from June 1992 until May this year, on a month-to-month basis. As you can see, since September 1992 the outbound industry has suffered nine consecutive months of negative growth. This is the industry's most prolonged slump ever.

Negative outbound growth has also cut into earnings. Graph 8 shows the growth in earnings for the main 35 travel agencies (that are required to submit revenue statements to Japan's Ministry of Transport). The industry as whole has sustained eleven consecutive months of negative earnings growth. For your interest, I have included the earnings for JTB to show that even the industry leader has not escaped the downturn.

In a poll taken of travel company managing directors this past May, most respondents expected outbound demand to improve from the Japanese autumn, although most companies expect sluggish sales and lower profits through to the end of this year and early into the next.

For the moment, however, consumer confidence remains weak. Four weeks ago JTB announced results of a survey of Japanese overseas travel plans for July and August. The survey indicates that the number of Japanese travelling abroad will drop this summer, the first decline in 13 years. The drop will be 1.7 percent in numbers and 11.3 percent in average expenditure on travel. The good news for Australia is that travel to our country remains buoyant. A rise of 5.3 percent over 1992 is expected to Australia, in contrast to a 10 percent decline in travel to Asia and 18 percent to Europe. The United States, on the other hand, will gain significantly, with rises of 21 percent to Guam & Saipan and 16 percent to mainland USA. The figures for Hawaii are expected to be unchanged from last year. Canada will also enjoy a resurgence, with a rise of 25 percent.

We could assume that the popularity of Guam & Saipan is due to their proximity to Japan, while the rise in travel to the U.S. mainland could be a reflection of the excessive price competition to that destination; for example, 4 night/5 day packages to the West Coast are selling for around 70,000 yen.

2. The FIT Market
According to a senior editor in Japan's major travel newspaper, the composition and the growth of the FIT market is the most widely discussed topic in the Japanese outbound industry. If you are wondering about how to tap into Japan's FIT market, let me offer some comfort. So are the Japanese wholesalers. The topic of the FIT market is a confusing one: there is no agreement as to what the definition is, let alone what the three letters stand for, how big the market is or the pace at which it is growing. It reminds me of the famous reply by an American judge when asked for his definition of pornography: "I can't define it, but I know it when I see it."

The reasons for the growth in the FIT market are equally complex. They include: the rise in the number of repeat travellers, the increased availability of cheap airline tickets and the desire for more economical travel as overseas travel becomes more and more a regular part of everyday life.

What everyone agrees on is this: the FIT market is growing and that it is important (and increasingly so). In April this year, the findings of a survey on the Japanese FIT market were published in the trade press. The definition of FIT was a tourist or honeymoon couple who used a travel company but who did not buy a package tour or participate in a group tour.

The survey found that the FIT market between 1988 and 1992 grew from 17.3 percent of the outbound market to 20.5 percent. Graph 9 indicates the changes in the composition of the FIT market for those two years. FIT travel has increased across all age and sex groupings.

Graph 10 compares the degree of participation in various activities between FIT and package travellers. As we might expect, the FIT traveller places a lower priority on sightseeing and shopping. Whereas the traditional Japanese travel pattern was "see, buy, eat" the FIT of the 1990s is less interested in seeing and buying and more interested in doing.

The survey also included questions about levels of satisfaction. The responses suggested that FIT travellers sought to get closer to the lifestyle and activities of the local people, rather than to undertake the more traditional sightseeing tourist activities.

One very interesting lesson emerges from this survey. Namely, that the shift away from package tours is perhaps motivated by the desire for a more enjoyable holiday experience relative to what the traditional package tour offers. Money is certainly not the prime determinant. The Japanese FIT traveller spends, in fact, more on travel than package travellers, although the difference is decreasing.

For instance, in 1990 the average expenditure on an overseas trip by an FIT traveller was 485,000 yen, compared to 457,000 by a package tourist. In 1992, average spending by FIT travellers dipped sharply to 457,000 yen, while the package traveller's average outlay was 421,000. Commenting on these trends, the authors of the survey believe that the first-time package tourist is dissatisfied with the restraints of the inclusive package product. As for FIT travel to Australia, the survey found that independent travel to Australia rose from 15.8 percent in 1988 to 19.4 percent in 1992.

Because of the immense diversity of budget-oriented package product available, it appears that, for many Japanese consumers, it is cheaper to purchase a package tour for the relatively inexpensive air portion and to discard the accommodation portion. Since transactions of this kind appear in a company's sales figures as package sales you can appreciate the difficulty of accurately quantifying the FIT market.

What can be said is that only a very small percentage of Japanese will buy only the air ticket in Japan, and make accommodation and other land arrangements after arriving in the overseas destination.

Many industry experts believe that the growth in the FIT market represents not so much an irreversible shift away from package tours but a desire on the part of Japanese consumers for greater choice in travel product. I will return to the question of declining demand for luxury package tours later.

One indication of the growth of the FIT market is the dramatic growth in travel companies specialising in discount air tickets and budget-oriented package tours. The main player in this field is H.I.S. Co. Ltd. In 1992, H.I.S. handled 414,000 Japanese overseas travellers. This represents 3.5 percent of Japan's total outbound market. Its main customers are students and budget-oriented young people, while anecdotal evidence suggests that even large companies are buying tickets from H.I.S. for their employees' business trips. Despite the continuing fall in overall outbound growth, both H.I.S. and Map International, the other main discount wholesaler, report that their sales for the first half of this year have risen more than thirty percent over the same period last year.

The growth in discount sales is the result of increased aircraft capacity out of Japan, particularly on the Pacific route serving Hawaii and mainland U.S.A. The resulting tough competitive environment facing many carriers out of Japan forces them to sell off their tickets in the so-called secondary distribution market.

The burgeoning FIT market can also be viewed as a manifestation of a larger consumer trend toward value-for-money sentiments among Japanese consumers. It is also a natural outcome of the growing outbound market. As more and more Japanese gain experience of overseas travel their confidence at looking after themselves in foreign lands increases. They no longer need the "security blanket" nor are prepared to pay for the luxury of up-market package tours.

How have the large wholesalers responded to the growing FIT market? Let us look at what JTB has done.

JTB was the first wholesaler to establish a business unit concentrating solely on the FIT market. In May last year the "Kaigai kojin ryoko senta" in Ichigaya, Tokyo, became JTB network's centre for FIT arrangements. The system works like this: The travel itinerary of an individual consumer is faxed or telephoned through to the FIT Centre from a JTB branch somewhere in Japan; the Centre then provides a quotation if required or proceeds with bookings and then informs the branch in question. This system was an improvement, since counter staff had previously had to handle FIT inquiries themselves.

Just three months ago, however, JTB announced a new strategy to capture the hearts and minds of the FIT traveller. The strategy is two-pronged: firstly, to provide more comprehensive booking and support services for the Japanese traveller in the foreign destination, and secondly, to more fully integrate its domestic network such that from April 1 this year all JTB branches in Japan can reserve and bill for airline bookings. By 1994, JTB's nationwide computer network is expected to process individual hotel reservations, also.

From June this year, JTB began selling a product called "Land Package". It has the same elements of a package tour except for the air component. This allows the overseas traveller to choose his or her own airline company and to leave on the desired day from any airport in Japan.

The newly crafted strategy appears to have been prompted by the company's business results for fiscal 1992. The results showed a decline in travellers handled despite an overall increase in outbound travel. Though JTB recorded marginal increases in the numbers of group and package customers handled, it handled 19 percent fewer independent travellers. JTB estimates only about 5 percent of its present customers are FIT travellers, but hopes to raise this figure to 15 percent in the near future.

In the article that detailed JTB's new FIT strategy, the JTB spokesman made a very interesting comment. It was this: That future competition among Japanese travel companies in the outbound market will focus on land arrangements, not air fares. This is because by the end of this decade Japan is likely to have surplus airport capacity, instead of today's congestion.

Of all the major wholesalers, Jetour appears to have had the most success with its "A La Carte" package product specially designed for FIT travellers. "A La Carte" allows the customer to choose departure date, route and hotel and other land services. The cost of handling individual inquiries has been greatly reduced by the introduction of a new computer system that facilitates immediate air and hotel reservation and automatic billing. Jetour expects "A La Carte" will exceed 20 percent of total package sales by the March quarter next year.

Kintetsu and NTA, on the other hand, have opted to rely on affiliated companies to handle FITs. Kintetsu relies heavily on its subsidiary, United Tours, for FIT hotel and air arrangements. NTA, meanwhile, channels all FIT inquiries through Flex International Tours (FIT).

All indications are for steady future growth of the FIT market. In the Japanese spring of 1994, the Japanese government will introduce a new air pricing system that is likely to reduce the cost of independent air travel. Also next year the Kansai International Airport on Osaka Bay is due to open, probably around September. Both these developments are likely to underpin further growth in overseas travel.

Even given the advantages that JTB and KNT possess in terms of retail networks and consumer trust, and the value-added elements of support services in foreign destinations, it is still difficult for them to compete on price against companies like H.I.S. who are not burdened with the massive overheads of a large wholesaler with thousands of employees.

Despite all the talk and activity surrounding the FIT market, the impression I received from talking to the large wholesalers in Japan at the beginning of this year was that they were mildly confident that independent travellers would not desert package travel altogether. To quote one a senior manager in NTA: "When Japanese consumers realise how troublesome it is to make one's own air booking, transport arrangements and flight reconfirmation, they will appreciate the advantages of package tours. Which type of travel they choose should really depend on the purpose of their trip."

The obvious advantage that wholesalers enjoy is the lower prices on hotel accommodation achieved through volume allotments. Although cheap air tickets may appear attractive, the costs of overseas travel begin to rise appreciably when individuals make their own hotel and tour bookings. Whether the wholesalers' optimism is justified only time will tell.

3. Decline in Luxury Tours
I would like to turn now to another important trend in Japanese outbound travel, one that is related to the growth in FIT travel. That is the shift away from luxury, or so-called first brand, package travel; in Japanese, it is called "ichi-bra banare".

The large wholesalers sell two types of package product: first brand and second brand. First-brand tours have traditionally been luxury courses, with accommodation at 5-star hotels, all ground transport prearranged, with most meals, sightseeing and shopping activities included, and perhaps with a tour escort from Japan. The main customer of the first brand package is, and will always be, the honeymoon couple on their "once-in-a-lifetime" experience (representing, on average, between 60-70 percent). The "silver" market, Japanese travellers over the age of sixty, are the other main purchasers.

Second-brand tours are cheaper, with accommodation at 3/4-star hotels, and only a few meals prearranged, and perhaps no activities included but with a variety of optional tours offered. The main customers of second-brand tours are much more diverse than the first-brand purchasers: they include office ladies (or OLs), groups of friends (all ages), honeymooners (budget-minded and/or adventurous), families, and so on.

Though the wholesalers are reluctant to reveal actual figures for first- and second-brand packages sales, there appears to be an irreversible trend away from the luxury, first-brand products. Again, let us look at the case of JTB. It sells its Look first-brand and Palette second-brand products.

The popularity of the second-brand Palette courses is clearly shown in Table 1 below. In 1993, JTB has forecasted a 16 percent rise in Palette courses compared to a 5 percent increase in Look sales. Anecdotal evidence suggests that all the major wholesalers are experiencing similar changes in consumer spending patterns. I emphasize again that the shift is away from luxury-brand packages, and toward second-brand and independent travel. In other words, not necessarily away from package product all together.

Why is this shift occurring? Several reasons can be offered. These include: the natural outcome of an expanding repeater market, which means that the security-blanket type mentality necessity of all-inclusive tours diminishes and the heightened desire to choose one's own activities while on holiday; the increasing adventurous nature of young Japanese; the explosion in travel information available throughout Japan; and the rise in discount air travel.

Perhaps equally important is the growing "value-for-money" sentiment among Japanese consumers that I mentioned earlier. Brand-name luxury items like Cartier are losing their appeal and consumer durables like the family car are being kept longer before being replaced. Instead, more emphasis is being placed on leisure time. This includes of course travel.

I cannot over-emphasize the fact that overseas travel has become a part of everyday life for increasing numbers of Japanese. Though the recession has undermined confidence in the short-term the underlying sentiment towards overseas travel remains strong. The question is not Will we go for an overseas trip this year, but Where will we go? Japanese are travelling more and spending less on each trip, in order to spread their money around.